David Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: privilege check. The coronavirus pandemic has had an impact on all facets of life, from how we work to how we file our taxes. For now, gone are the days of grabbing lunch with a colleague or walking into your tax preparer's office. And for low-income individuals and families, COVID-19 has heightened these inequities and presented new challenges, from navigating government assistance to finding reliable internet access. So what role does tax policy play in these issues and how should that change going forward? Here to talk more about this is Tax Notes reporter Alexis Gravely. Alexis, welcome back to the podcast.
Alexis Gravely: Hey, Dave. It's good to be back.
David Stewart: So you recently spoke with someone about this issue. Who did you talk to and what'd you talk about?
Alexis Gravely: Yeah. I spoke with Rebecca Thompson of Prosperity Now and we discussed what it's like for lower and moderate income families who are trying to file their taxes during a pandemic and a program that aims to help them out. Rebecca also shared a really interesting perspective on some of the provisions in the next COVID-19 relief package and what she wants Congress to keep in mind as they finalize the legislation.
David Stewart: All right. Let's go to that interview.
Alexis Gravely: Hi, Rebecca. Welcome to the podcast. Thanks for being here.
Rebecca Thompson: Hi, Alexis. Thank you so much for having me. It's great to be here with you today.
Alexis Gravely: So it's been nearly a year since the pandemic hit the U.S. And we're now in our second tax filing season since COVID-19 began. How has the pandemic changed the tax filing season for low-income families and families of color? Is there anything in particular that you've seen or heard?
Rebecca Thompson: Yes. There have been significant changes in the tax filing season due to COVID-19, particularly for low-income families and families of color. I think I would go back to around this time, maybe a little bit later, mid-March last year in 2020, when the first thing that we saw was the majority of the free tax preparation sites across the country had to close their doors mid-season. Typically, you know, on an average year we have about 3,700 VITA sites across the country that are open, and that's Volunteer Income Tax Assistance sites where IRS trained and certified volunteers actually give their time and their service to prepare and file tax returns for low-income people across the country. So typically we have about 3,700 VITA sites and right about mid-March over 90 percent of those sites closed their doors due to the pandemic. And what we saw with some immediate shifts and some quick responses to identify plan, develop, and deploy alternative service delivery models of free tax preparation services.
And so where people had previously come into a site, gone in and sat down with the preparer and had their returns done in person, we were no longer able to do that. And so we saw our programs and our partners across the country using things like Zoom, and Google Meet, and JotForm, texting and email to communicate with the filers that they hadn't yet served for the filing season. And then, you know, make an effort to try to get them in to get their returns completed and filed.
That actually carries forward into the present filing season, into this 2021 filing season, where we see our partners using even more options to deliver services, including, you know, their iterations of a drop-off method, where people go in and drop their documents off, or they have them scanned or copied. Very limited contact method. We have some folks who are offering appointments only. And so it's very, very limited in the contact, but still we're providing the same free tax preparation services to low- to moderate- income households and families of color across the country this filing season.
Alexis Gravely: The IRS began filing season on February 12, which is about three weeks later than normal, but as of right now, the deadline hasn't changed. What sort of impact, if any, do you think this could have on low-income residents or families of color? And do you think another deadline extension like we saw last year would be beneficial?
Rebecca Thompson: What we see is that our sites are dealing with limited capacity. So imagine in previous years when you would show up to a VITA site on a Saturday morning and maybe the site opens at 10 and by 9 a.m. there's a line of 50 clients waiting outside, sometimes in the cold huddled, outside, waiting for the site to open. And then they would all crowd into whatever community space was available and wait to have their returns prepared.
So that is no more for this filing season. We are just not able to serve people in that way and allow for such crowds. And so we find that our sites are dealing limited capacity. I mentioned earlier that some folks are offering limited appointments and clearly with social distancing and the need for space and cleaning between clients, even if they come in in-person, we're still operating with limited capacity.
So for those folks who need to file, absolutely need to file by April 15, we could be feeling a bit of a crunch to get all of the clients taken care of by the filing deadline if it's not extended. One of the things that we learned from last filing season, though, with the extension to July the 15 in 2020 — one of the things we learned was that if you give people more time to file, they actually take more time to file. And so we saw this mass influx of tax returns to be prepared and influx of clients through virtual and other means last year for people at the beginning of July because people had just waited until the last minute. So I would say that there's no guarantee that an extension of the filing deadline would actually allow us for more capacity given human nature to procrastinate. But it could definitely be beneficial and allowing our partners who normally close their doors on April 15 that additional time to serve more clients.
There are a couple of challenges that we see with this. And one of them is volunteer capacity and volunteer retention. As a former program manager, I had volunteers who were a lot of retirees who when the filing season ended on April 15, they had usually left town by April 18. They were on vacation. Of course, folks won't be leaving there; won't be this mass exodus this year due to COVID-19, but there are some concerns about keeping volunteers around to serve during an extended filing season.
And then I think there's an opportunity here. Well, a couple of opportunities as well. One is for education for those people who are expecting a refund, of course we encourage people who are expecting a refund, especially during this time to go ahead and file early to e-file and get direct deposit so that they could get that cash in hand as quickly as possible. Not everybody is able to do that. And so I think it's an opportunity to educate people, if they're expecting a refund, that they will not incur any penalties if they're not able to get that tax return by April 15. Now, if they're expecting to owe, then that return absolutely must be filed by the April 15 deadline, or they will incur penalties for failure to file and failure to pay.
And then the last thing I'll say is that, even if the IRS does eventually elect or decide to extend the deadline beyond April 15, one key concern that we have is around EITC returns and particularly those returns from 2017. If someone may be eligible for the EITC for 2017 income and they haven't filed that return yet, that return as of right now is due in the hands of the IRS by April 15 or those families would risk losing that EITC refund, which expires after three years if the return hasn't been filed. And so as we're thinking about conversations and we're having conversations around extending the filing deadline, we want to make sure that if there's any extension of the general deadline beyond April 15 that the deadline for those 2017 EITC returns is also extended as well.
Alexis Gravely: So you just mentioned with respect to the volunteer income tax assistance or VITA, that one of the lessons you all learned last year is that if the deadline is extended, then people will still wait until the deadline to try to file their returns. So I'm wondering if there are any other lessons that you all learned in offering free tax prep services during the pandemic and how that will shape the work that VITA continues to do post-pandemic.
Rebecca Thompson: Yes, yes. Yeah. That was a lesson that if you give people more time to file, they will take more time to file. Other lessons that we learned a lot through last summer and fall have really helped us to be able to tailor and really tweak the service delivery models that are being offered this year. I think one of the biggest things was something that we already knew in the back of our minds, but really came to the forefront is that really not everybody can do virtual and that the digital divide in this country is real. And it's real not only in access to technology, but also in tech savviness. And that was brought to the forefront for us last year and this year more so than ever as we made the shift, our partners made the shift to continue to deliver services in this new virtual environment and non-traditional space.
We saw clients who were apprehensive, of course, naturally apprehensive about this new technology, but then there's some folks who just can't. And then there's some folks who just won't. And so in so doing our partners have really identified and learned and have really worked to develop a menu of service delivery options to accommodate a broad range of client capabilities and to meet their volunteer needs as well. Because there are many volunteers who don't want to operate and don't want to volunteer in a virtual environment. And so our partners have had to develop a number of ways and implement a number of ways in which they're able to serve clients this filing season. We did a survey a couple of weeks ago, and we've got 77 responses from our partners. And the overwhelming majority of our partners are delivering and offering services in three or more different ways.
And so clients have the opportunity to either do fully virtual through programs and platforms like getyourrefund.org and at the same site or the same location through the same VITA partner, they can also do drop-off. And then some clients are also offering limited appointment only in-person services as well. And so the menu is definitely something that we have learned is a must-have during this filing season.
The other thing that we learned — we learned more about the challenges of reaching the hard-to-reach communities, which we already knew that it was hard to reach some folks because that's why they're hard to reach. And in summer and fall of 2020, many of our partners actually joined forces with local partners, other local community partners, and state agencies to participate in the outreach for the economic impact payments. And it was challenging because it is hard to reach people who don't have email, who don't have bank accounts, who don't normally use, particularly in this COVID era, in this virtual environment, people who don't use their phones for more than just a cell phone or just to make calls or texts.
And so we found that clear, concise, targeted messaging and communications as well as strategic partnerships are key to reaching the communities and the populations that we want to serve the most.
Alexis Gravely: Switching gears a little bit, we know that marginalized communities have suffered disproportionately during the pandemic. What are some steps that you would like to see Congress take to further assist these communities during this tax season and beyond?
Rebecca Thompson: Right now, the first thing that we have asked and continue to ask Congress to do is to share messages with their constituents about the free filing options for this season, especially those who are in the hardest hit areas in those districts, in those states who have really been hit hard by the pandemic. So one is sharing the messages.
Now I know that Congress has — there's a lot that's going on and there's a lot of packages and relief packages that they're looking at at the moment. I will caution this: it could potentially be a double-edged sword. More money in the form of stimulus payments right now could actually disrupt the filing season because of the fact that they are leaning on the IRS to actually administer these payments. So we have some concerns about whether or not they will be any potential disruptions to the filing season, which could cause delays in refund processing, which is why I said it could potentially be a double-edged sword. Because on the one hand we would be providing additional cash in hand to those families in the form of a stimulus check while the other hand also delaying the cash in hand that they are expecting in the form of a tax refund. So we must be careful when making the decision. We ask Congress to be cautious and to be mindful when they're making the decisions around the next stimulus payment and the implications that it will have on the filing season.
Other things that Congress can do, maybe not right now, but definitely over the course of the next year as families, our communities, and our economy hopefully starts to rebound from that pandemic is to expand the EITC both in the eligibility criteria. And so we're looking to actually increase eligibility for the EITC to those ages 18 to 24. And on the other end to remove the age limit to support working grandparents who are taking care of their grandchildren really. And to increase the value of the credit, particularly for those who are childless workers because we know that they continue to be taxed into poverty. So younger, single childless workers need a larger value in the EITC. And then finally, of course, there's expansions of the CTC, that's the child tax credit, to make it fully refundable, to increase the dollar value and the eligibility for the credit.
Alexis Gravely: Yeah and that's actually what I was going to ask you about next. So we're recording this on February 23 as Democrats in Congress are working on this next COVID-19 relief package and an expanded child tax credit is included. So if this is enacted, what does that mean for low- and moderate- income families? And do you think it will be enough?
Rebecca Thompson: I think it's definitely a start. I think it's definitely helpful. The expansions of the child tax credit are definitely beneficial to support families with children. I don't think it'll be enough just because the wealth gap is so wide and so large, and this is just one step in the process. There are many other things and many other policies that we would actually like to see enacted to support the whole family. And so it is a step in the right direction. It's not quite enough. I am a single mother of four sons and so I'm also very excited about the possibility of an expanded child tax credit. I will say that one of the good things that has come out, but it's also raised a concern and an issue is that what we're finding is that low- and moderate- income filers, especially people of color, are paying attention. They're watching and they are — they have a heightened level of awareness around what's happening with the COVID-19 relief package.
For instance, one of our partners in New Jersey commented a couple of weeks ago that as their sites were opening they already had tax filers coming in. They were reviewing a return with someone, with a client and she looked over the numbers and she says, "Well, what happened to my $3,000? Where is my $3,000 child tax credit that I was promised that was in the COVID-19 relief package?" And so people are aware of what's in the package. They understand how it can benefit them. They're looking for it right now just because they don't have a full understanding of the legislative process. And just because it's in the relief package that the president proposed doesn't make it a done deal. So it does present an opportunity, particularly for our members of Congress to reach out to their constituents and help them to understand the legislative process. But it's a good thing that we have a heightened level of awareness all around.
Alexis Gravely: This proposed expansion of the child tax credit in its current iteration in the bill says that it would be delivered monthly beginning in July. Do you think that that could have some sort of negative impact on filing season if that comes up?
Rebecca Thompson: I don't think that the delivery of a monthly credit would have — not this filing season. It wouldn't have any impact on this filing season, especially if it doesn't start until July. I do think, again, that it presents another opportunity for clear, concise messaging and outreach to people.
And the other thing I would say is that it's important to provide people with an opportunity to choose how they would like to receive their credit. Several years ago, we had a thing that was called an advanced earned income tax credit, which was done away with around 2011 or 2012 because not enough people were taking advantage of it. And our organization conducted a survey a couple of years ago where we asked a variety of hosts of clients about what their needs were. And one of the things that we learned was that clients really prefer — our clients prefer — actually getting the lump sum refund.
It is somewhat of a savings account. It's confusing and baffling to the economists that people actually don't want the cash in hand on a monthly basis to help to smooth out their income, but that they would rather set it aside in somewhat of a federal savings account knowing that they're going to get that those funds in their tax refund.
A part of the reason is because it allows them to plan for large expenses and major purchases throughout the course of the year, if they know that they have that money coming in. So that is something that I would say should be offered as a consideration — whether or not people would want to get that money monthly or if they should have the option to receive it as a lump sum during their tax refund.
Alexis Gravely: It's a really interesting perspective. In covering this part of the package, I haven't heard a lot of people make that point so thank you for that. Are there any other tax policy initiatives or proposals that you would like to see either in this relief package or in future relief packages that are really targeted towards low- and moderate- income families?
Rebecca Thompson: Yes. There are are a couple. Along those lines of allowing people to either receive the full amount — the amount of the credit — in monthly payments or in the form of a lump sum, another thing that we've proposed is a refund to rainy day savings account. Through this proposal, actually people who are eligible for the EITC would actually be able to defer up to 20 percent of their refund to receive it six months later than after they filed their taxes. And so you file your taxes, you get 80 percent of your refund within the three weeks, direct deposit. And then another six months later, you get the 20 percent of your refund. And what this does is it allows a cushion for families, particularly around the August and September timeframe, when children are preparing to go back to school in a normal year. And families have to expend resources to help buy school supplies, you got to go school shopping. Well, now those funds would be there. So it's not something that would have to come out of that family's normal household budget, but it will be drawn from that additional refund. So that's something that we are strongly encouraging Congress to take a look at as well.
Another strong proposal that we're looking at is the baby bonds — The Americans Opportunity Accounts Act, which would actually provide for every child to receive an account at birth, a savings account, to help to support their long-term future, 18 years from now when they're prepared to go to college or what have you. So we want to give every child some seed money to start with because we know that children who have a savings account — no matter how much even if it's as little as $25 — are much more likely to attend college and get post-secondary education than those who don't. And so we want to help to level the playing field by providing that seed money and that starting account for every child in America.
Alexis Gravely: Well, it was great talking to you, Rebecca. Thanks again for joining us. I really appreciate it.
Rebecca Thompson: Thank you so much for having me. It's been a pleasure to talk with you today.
David Stewart: And now, coming attractions. Each week, we highlight new and interesting commentary in our magazines. Joining me now from his home is Executive Editor for Commentary Jasper Smith. Jasper, what will you have for us?
Jasper Smith: Thanks, Dave. In Tax Notes Federal, three tax professionals at Think LLP look at the employee retention credit available now to some small businesses even if they received PPP loans. Three Withers practitioners consider ways in which the IRS investigates high-net-worth taxpayers. In Tax Notes International, Lucas de Lima Carvalho considers how real-world income from transactions between players of multiplayer online role-playing games should be treated under tax treaties. Tatiana Falcão looks at how countries handle stolen data. On the Opinions page, Roxanne Bland examines the difficulties in determining a taxpayer’s tax home. Nana Ama Sarfo outlines some potential and past litigation in Mexico, the United Kingdom, and India over biometric tax rules. And now, for a closer look at what’s new and noteworthy in our magazines, here is Tax Notes State Editor in Chief Jéanne Rauch-Zender.
Jéanne Rauch-Zender: Thank you, Jasper. I'm here with Andrew Kahrl, professor of history and African American studies at the University of Virginia. We're going to discuss his article, "More for Less: How Property Taxes Fuel Racial Inequality." It's the first installment of a new Tax Note State series titled, "The Search for Tax Justice," which examines the inequities in state and federal taxes. Welcome to the podcast, Andrew.
Andrew Kahrl: Thank you for having me. It's a pleasure being here.
Jéanne Rauch-Zender: Would you provide us with an overview of your article?
Andrew Kahrl: My research looks at the history of property tax administration and the ways that, historically and still today, it works to the disadvantage of African American property owners and homeowners and neighborhoods and in some ways continues to racial inequities both in housing markets and in schools in America. It looks in particular at the ways that property assessments have been manipulated, sometimes consciously other times just built into the structure of the way that property assessments are determined, but in ways that have historically forced African American neighborhoods and property owners to pay more relatively speaking in property taxes than their white counterparts. And then I look at the consequences of that, both in terms of forcing African American taxpayers to assume a heavier burden and also making them more vulnerable to tax delinquency and property loss via the tax delinquency laws in many states that allow for the total loss of property for unpaid taxes.
Jéanne Rauch-Zender: In your article, you write that the local property tax stands at the heart of a vicious cycle that preserves racial inequities in housing markets and schools as you briefly just mentioned. Would you share ways the cycle can be broken?
Andrew Kahrl: For me, one of the problems I see with property taxes is the way that it has become such a lifeblood for local governments in particular — one of the main funding sources for local schools. And how when you have a system set up whereby the amount of funding going toward your public schools is based on your local tax base, that tends to encourage both public policies and administrative practices that seek to enhance property values, which in a sense is a good thing, but can also contribute to the segregationist tendencies of housing markets to concentrate middle class white homeowners in certain areas, lock in those advantages, and in turn lock out communities of color from the same.
So I think a lot of it for me comes back to this question of not just whether or not taxing property is a good thing or a bad thing, but rather what happens when the assessment collection and then distribution of that tax is all kind of kept within localities. And how that in turn can encourage local governments to engage in exclusionary practices.
Jéanne Rauch-Zender: Thank you, Andrew. I think your article is a must-read and I really appreciate you joining me today. Before we go, where can our listeners find you online?
Andrew Kahrl: I'm on Twitter. I write about these both for academic and for popular audiences. I try to engage in the very crucial debates that are unfolding over school funding equality in America. How do we actually ensure that the right to a good public education is broadly distributed? And offer historical perspective on these questions, both in terms of how the law has evolved over time. And in particular how these material incentives, again at the local level have oftentimes contributed to the ongoing struggle to achieve the promise of educational equality. I've tried to engage with whatever audiences both in and outside of the academy I can.
Jéanne Rauch-Zender: Thank you. This won't be the last time, I hope, that we see you in the SALT pages. You've got a lot to say, and I'm really looking forward to continuing this discussion with you. Thanks again for joining me today.
Andrew Kahrl: Great. Thank you.
Jéanne Rauch-Zender: You can find Andrew's piece online at taxnotes.com. And be sure to stay tuned for the next installment of The Search for Tax Justice in Tax Notes State. And don't forget to subscribe to our YouTube channel Tax Analysts for more in-depth discussions on what's new and noteworthy in Tax Notes. Again, that's Tax Analysts with an S. Back to you, Dave.
David Stewart: You can read all that and a lot more in the pages of Tax Notes Federal, State, and International. That's it for this week. You can follow me online @TaxStew, that's S-T-E-W. And be sure to follow @TaxNotes for all things tax. If you have any comments, questions, or suggestions for a future episode, you can email us at podcast@taxanalysts.org. And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.
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